What is a vacant house? And which city services should benefit from the revenue generated by a proposed special tax on vacant properties?

Disputes over that last point proved to be a dealbreaker on Wednesday, when a Honolulu City Council bill that would have raised taxes on vacant homes was postponed indefinitely.

Supporters of the measure say it would help alleviate Honolulu’s housing crisis by encouraging owners of vacant homes to rent or sell their properties for long-term use.

This is not the city’s first attempt to introduce such a tax. Council members also failed to pass a tax on vacant homes with Bill 9 in 2022 and Bill 69 in 2018.

The basic idea of ​​the bill has broad support, but logistics have proven to be a hurdle. If passed, the city’s Budget and Finance Office would be responsible for implementing the law. Executives from that office, such as Steven Takara, director of the property appraisal department, have said they are concerned the law is too complicated and needs more study.

The city commissioned a study on the issue shortly before City Council President Tommy Waters and Council Member Radiant Cordero introduced the latest bill to tax vacant homes, Bill 46, which uses much of the same language as the 2022 version.

But questions remain about who should be exempt from the tax and where the tax’s revenue should go. That prompted Councilman Matt Weyer to delay the bill, using his power as chair of the Housing, Sustainability and Health Committee. He said he intends to bring the issue back for discussion, perhaps in a month or two.

Incentives for more housing units

Waters believes the estimated 34,000 vacant homes are due to Honolulu being a good place for real estate investment due to its low property taxes compared to the rest of the country.

This drives up demand, which in turn drives up prices. The idea is that introducing a high vacancy tax would counteract this dynamic, and the additional revenue would benefit the city and could be used to build more affordable housing.

As it stands, the default assumption would be that homeowners would pay the tax. It would start at 1% of assessed value, rise to 2% the next year, and finally settle at 3%. If Bill 46 passes, the tax on vacant homes would be in addition to regular property taxes.

Homeowners can prove residency by submitting proof of permanent residence, such as utility bills, a driver’s license or rental agreements.

Senior politicians have supported a tax on vacant homes for years, pointing to places that have successfully implemented it, such as Vancouver. Mayor Rick Blangiardi mentioned it during the 2020 election campaign, and Waters has long been outspoken in favor of its implementation.

The devil is in the details

Despite this support among both elected officials and many community members who want more housing but are skeptical about further development, the bill remains stuck in hearings as council members and administrators wrestle with how to implement it.

Considerations include the threshold at which a home is considered “vacant,” the city’s method of enforcement, and the exact rate owners would have to pay.

By law, a home is considered “vacant” if it is occupied for at least six months of the year. But the six-month calculation is contested by the Oahu Short-Term Rental Alliance, whose members already received a big property tax increase a few months ago when their rate was brought closer to the rate paid by hotels.

Bed and breakfasts, short-term rentals and ohana units would be exempt from the vacant home tax under an amendment proposed by Weyer, whose district includes the North Shore.

Council members Esther Kiaaina and Augie Tulba opposed his amended version, saying they disagreed with his approach of allocating vacant home tax revenue to a special affordable housing fund rather than leaving it open for further discussion about potentially using it for things like general city services.

That prompted Weyer to delay the bill indefinitely, meaning the measure is stuck in his committee until he revives it. That will happen if other council members offer their own amendments or feel comfortable with the changes he proposed, he said in an interview after the hearing.

The question of how a tax on vacant houses should be enforced, apart from exceptions, has been an open question for years.

Searching through Oahu’s roughly 278,000 residential properties and determining which ones are vacant would be a daunting task for city staff, said Andrew Kawano, director of the Department of Budget and Finance.

To work out such details and figure out how much money and new technology the administration would need to enforce the tax, the city is paying nearly half a million dollars to the consulting firm Ernst & Young to develop a plan, with the final version expected in summer 2025.